Taiwan: Manufacturing PMI edges down to 22-month low in August despite robust orders and output
September 3, 2018
The Taiwanese manufacturing sector once again lost steam in August, the fifth time it has done so in the past six months. The manufacturing Purchasing Managers’ Index (PMI), reported by Nikkei and IHS Markit, inched down in August to a 22-month low of 53.0 from 53.1 in July. Nonetheless, the index remained above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has now been for over two years.
Despite the dip in the headline figure, new orders growth and output growth both accelerated in August, with new business buttressed by stronger exports. Moreover, firms’ purchasing activity accelerated in August due to increased business, which led to higher input inventories. However, employment stagnated for the first time in over five years, with some companies reporting difficulty filling vacancies. Consequently, backlogs of work rose at a faster pace in the month.
Input cost inflation eased to a one-year low, although remained high by historic standards. As a result, output prices also rose, albeit at the softest pace in one year.
Meanwhile, ongoing trade tensions between the U.S. and China continued to weigh on business confidence towards the year ahead, which fell to a two-year low. Firms expressed concerns that domestic conditions could weaken as a result of the conflict.
In response to August’s print, Annabel Fiddes, principal economist at IHS Markit commented:
“Taiwan’s manufacturing sector continued to expand midway through the third quarter of the year. Growth rates for output and new orders both picked up from July’s recent lows. Encouragingly, export sales rose for the twenty-seventh month in a row, and at a solid pace, suggesting that external demand remained relatively robust. [..] However, other sub-index data hinted at the possibility of a growth slowdown in the months ahead.”
All told, a downward trend in the headline PMI, falling business confidence and the escalating U.S.-China trade dispute, suggest softer growth in the manufacturing sector in H2 2018.
Author: Lindsey Ice, Economist